Student Debt Woes

You finish all of your classes and successfully graduate from your program holding that degree or diploma in your hand. Hurray!

But, then a few months pass, and you get that dreaded letter informing you that you have to start paying back the student loan you took out when you first began going to school a few years earlier.

Student debt is an ever growing problem in today’s society due to the continuous increase in tuition fees every year.

According to a report done by the Canadian Council on Learning (CCL) about managing student debt and loan repayment in Canada and the challenges they pose, student debt has more than doubled in the last 20 years, rising from $12,271 to $24,706 between 1990 and 2000 for undergraduate students, and has increased to $26,680 for university graduates, and $13,600 for college graduates as of 2009.

That is a huge increase for students trying to get an education.

But, what else is there to do? Students want to get an education and their parents don’t have the money to afford it; the only thing they can do is take out a loan.

I had to take out a loan myself for two out of five years of my post-secondary education. I applied for a loan with OSAP (Ontario Student Assistant Program, which I am sure many of you Ontario post-secondary students out there are familiar with), and was accepted.

The problem I had with using OSAP is that the program gives you way more money then you actually need for tuition and textbooks (at least, this is what happened to me).

In my first year of university, I was given about $2,300 more than was necessary to cover my tuition and books. And, in my second year, I was given about $400 more than was needed. That’s about $2,700 extra debt that the government gave me that I would have to pay back.

So, what do you do when school’s all done, and you have to start paying it back? How do you go about paying it off?

The report by the CCL previously mentioned above, also mentions that there are two approaches to repaying student debt:

1)      Mortgage-Style Repayment (MSR)

2)      Income Contingent Repayment (ICR)

Mortgage-style repayment is a debt contract that sets out an amortization schedule that anticipates when the entirety of the loan will be repaid within a given timeframe, usually 10 to 15 years. Throughout that given timeframe, the borrower (a.k.a. the student), makes regular payments of a fixed amount, just like one does for a mortgage.

Income contingent repayment is when the government gives financial aid to a student on the condition that a borrower’s repayment agreement is based on an agreed percentage of the student’s future earnings.

When deciding what kind of loan to take out, whether it’s OSAP, a bank loan or some other kind of loan, look at which method of repayment it has, and what works best for you and your budget when you will have to start paying it back.

As I mentioned, I have OSAP that I am currently paying off. The way OSAP works is that you have to start paying it off six months after you graduate, and every day there is interest on it that you have to pay (as well as the interest that accumulated for the six months after you graduated that you didn’t have make payments for).

Here’s how I approached paying off my debt.

I looked at what I made each month, subtracted all my other expenses, such as rent, phone bill and food, and saw the fixed amount I could afford to put towards my loan each month.

After a year and a half of putting payments on my student loan (I started making payments three months earlier than I had to because I had the money to do so, and I wanted to get a jump start on it), I’m  about ¾ of the way through paying off my entire loan (and that’s making minimum wage).

I’m sure all you perspective students out there are wondering if there is any way to avoid having to take out a loan so that you’re not buried in debt when you graduate, or at least, not too buried.

Well, if you do decide to take out a loan and you are given more than you need, then keep the extra money saved away in the bank and use it to pay for your next year or towards your next year. Don’t throw the extra money away on material things or going out with friends.

And, if you decide to avoid being in debt altogether, then get a job and start working as soon as possible when you’re in high school, or take a year off after graduating from high school and just work. That way by the time you graduate, or after that one year of working, you’ll have enough to pay for school, depending on the program of course.

Below, are two links, the first being the report that was done by the CCL about managing student debt and loan repayment in Canada, and the second link discusses student debt laws in Canada:

Those links have a lot of important pieces of information regarding student loans that can help you out when trying to decide about getting a loan or not.

So, read them over, and I hope you find the information helpful, and that it keeps you from getting too far into debt.

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